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controversy or the most significant issue or set of issues
presented; and (2) satisfy the applicable net worth requirement.
Sec. 7430(c)(4)(A). Respondent concedes that petitioners have
satisfied the requirements of section 7430(c)(4)(A). According
to respondent, however, petitioners are not prevailing parties
within the meaning of section 7430 because respondent’s positions
in the administrative and court proceedings were substantially
justified. Sec. 7430(c)(4)(B)(i).
In general, the Commissioner’s position is substantially
justified if, based on all of the facts and circumstances and the
legal precedents relating to the case, the Commissioner acted
reasonably. Pierce v. Underwood, 487 U.S. 552 (1988); Sher v.
Commissioner, 89 T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th Cir.
1988). In other words, to be substantially justified, the
Commissioner’s position must have a reasonable basis in both law
and fact. Pierce v. Underwood, supra; Rickel v. Commissioner,
900 F.2d 655, 665 (3d Cir. 1990), affg. in part and revg. in part
on other grounds 92 T.C. 510 (1989). A position is substantially
justified if the position is “justified to a degree that could
satisfy a reasonable person.” Pierce v. Underwood, supra at 565
(construing similar language in the Equal Access to Justice Act).
Thus, the Commissioner’s position may be incorrect but
nevertheless be substantially justified “‘if a reasonable person
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